Dell going private in $24 billion deal

SAN FRANCISCO--PC maker Dell Inc. will become a private company under a leveraged buyout deal worth about $24.4 billion, the company said Tuesday (Feb. 5).

Under the terms of the deal, Michael Dell, the companyís chairman and CEO, will acquire Dell in partnership with Silver Lake Partners, a leveraged buyout specialty firm focused on high-tech.

The deal includes an unspecified amount of cash and equity contributed by Michael Dell, cash funded by investment funds affiliated with Silver Lake, a cash investment from an investment firm owned by Michael Dell and a $2 billion loan from Microsoft. Terms of the deal also include rollover of existing debt and debt financing committed by several financial institutions. A breakout of how much Michael Dell and Silver Lake are each investing was not immediately available.

Michael Dell already owns roughly 14 percent of Dellís common shares. He will continue to lead the company as chairman and CEO after the completion of the deal, Dell said.

Michael S. Dell

Dell stockholders will receive $13.65 in cash for each share of Dell common stock under the terms of the deal. According to Dell, the price represents a premium of 25 percent over Dellís closing stock price on Jan. 11, the last trading day before rumors that the company would go private were first published. The price also represents a 37 percent premium over Dellís average closing price during the 90 days prior to Jan. 11, Dell said.

Dellís stock price closed at $13.27 Monday.

Dell, founded in the mid-1980s, has in recent years battled rival Hewlett-Packard Co. for leadership in global PC sales.But in the fourth quarter of 2012, Dell trailed both HP and Chinaís Lenovo Group Ltd. with a PC market share of about 10 percent, according to Gartner Inc. Both HP and deal are facing increased competition from the likes of Lenovo, Acer and other OEMs based in Asia.

The only reason I see for the privatization is so that the core direction can be changed. Stockholders demand returns on their investment and as DMcCunney says, the PC is a commodity market with razor thin margins. With the declining sales of PCs towards phablets, the margins eventually won't cover fixed costs.
By going private, previous dividends can be redirected to R&D so that Dell can reinvent itself. Or maybe even sell the PC division? Too early to speculate.

It looks like a good deal for the shareholders. The question is whether Dell will *survive*.
The PC market is a commodity market with commodity pricing and paper thin margins. Given equivalent specs, it mostly doesn't *matter* whose name is on the box, and the purchase decision comes down to price, with lowest cost producer winning. Dell hasn't been the lowest cost producer, and it's not clear it *can* be.
The pressures that drove Dell to this are the same ones that saw IBM exit from the PC business they began, selling out to Lenovo, and had HP announcing an intent (later reversed) to get out of the PC business as well. You simply can't make money selling PCs.
Taking the company private relieves the pressure from the public markets, looking for revenue and profits Dell probably *can't* make. But it doesn't relieve the pressure period: the funds that put up the money to make these leveraged buyouts do so in expectations that the company can be turned around and made profitable, and that they can then sell their stake for more than they invested and make money on the difference.
I foresee interersting times for Dell as they try to turn around the business.

Dell's computer is always more expensive than other brands. They offer big discount coupons - Lots of them listed at http://www.gogoshopper.com/Dell-com-Home-coupons.html . But even after the discount, their price is no cheap at all. Go figure at Costco or Sam's club: with a similar configuration, Dell is at least $100 more expensive than HP. Now they finally announced XPS 13 Ultrabook. But the price is again not acceptable.

The numbers are really huge. You know I guess I would also want to go private. In times of financial instability there is no need for anyone to know the amounts like that. I mean I am curious where do they get billions of dollars while some have to obtain payday loans ( http://paydayloansat.com/ ) in order to buy some food for their families? Hopefully the deal is going to make sense, because it would be sad if all of those millions-billions are going to be wasted. I do not really see how this deal is going to help Dell itself? I see all of the advantages for shareholders and this is it so far. Thanx for the updates

The deal looks very lucarative for PEs and Mr. Dell and other parties - given the company has net cash of $5bn (debt of $9bn & Cash of $14bn. So with total purchase price of $24bn, they need to contribute ~19bn or slightly more, in form of debt and equity, of $2bn will come from MSFT. Given the fact, Dell generated FCF of $12bn in last 3 yrs (2010-12). With the av. FCF run rate of $2.5bn a year. PEs can leave firm with 24% return (on EV/EBITDA of 3.0x)after five years with minimal debt.